Question

Consider the following financial statement information for the Hop Corporation: Item Beginning Ending Inventory $11900 $12900 Account Receivable $6900 $7200 Accounts Payable $9100 $9500 Net Sales $99000 Cost of Goods Sold $79000 Calculate the operating and cash cycles (Use 365 days a year. Do not round intermediate calculations and round your answers to 2 decimal places, e.g.32.16)

Answer 1

Answer:

Average Inventory = (Beginning Inventory + Ending Inventory) / 2
Average Inventory = ($11,900 + $12,900) / 2
Average Inventory = $12,400

Inventory Turnover = COGS / Average Inventory
Inventory Turnover = $79,000 / $12,400
Inventory Turnover = 6.3710 times

Inventory Period = 365 days / Inventory Turnover
Inventory Period = 365 / 6.3710
Inventory Period = 57.29 days

Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2
Average Accounts Receivable = ($6,900 + $7,200) / 2
Average Accounts Receivable = $7,050

Accounts Receivable Turnover = Sales / Average Accounts Receivable
Accounts Receivable Turnover = $99,000 / $7,050
Accounts Receivable Turnover = 14.0426 times

Accounts Receivable Period = 365 days / Accounts Receivable Turnover
Accounts Receivable Period = 365 / 14.0426
Accounts Receivable Period = 26 days

Operating Cycle = Inventory Period + Accounts Receivable Period
Operating Cycle = 57.29 + 26
Operating Cycle = 83.29 days

Average Accounts Payable = (Beginning Accounts Payable + Ending Accounts Payable) / 2
Average Accounts Payable = ($9,100+ $9,500) / 2
Average Accounts Payable = $9,300

Accounts Payable Turnover = COGS / Average Accounts Payable
Accounts Payable Turnover = $79,000 / $9,300
Accounts Payable Turnover = 8.4946 times

Accounts Payable Period = 365 days / Accounts Payable Turnover
Accounts Payable Period = 365 / 8.4946
Accounts Payable Period = 42.97 days

Cash Cycle = Operating Cycle – Accounts Payable Period
Cash Cycle = 83.29 days -42.97 days
Cash Cycle = 40.32 days